Arkansas Tech University Russellville, Arkansas Annual Financial Report Independent Auditor s Report and Other Reports June 30, 2001 LEGISLATIVE JOINT AUDITING COMMITTEE
TABLE OF CONTENTS JUNE 30, 2001 Independent Auditor's Report Combined Report(s) on Compliance, Internal Controls and Other Matters FINANCIAL STATEMENTS Exhibit Balance Sheet Statement of Changes in Fund Balances Statement of Current Funds Revenues, Expenditures and Other Changes Notes to Financial Statements A B C SUPPORTING SCHEDULES Expenditures of Federal Awards 1 Federal Award Programs - Findings and Questioned Costs 2 Federal Award Programs - Summary of Prior Audit Findings 3 Schedule
INDEPENDENT AUDITOR'S REPORT Arkansas Tech University Legislative Joint Auditing Committee We have audited the balance sheet of Arkansas Tech University, an Institution of Higher Education of the State of Arkansas, as of June 30, 2001 and the related statements of changes in fund balances and current funds revenues, expenditures, and other changes for the year then ended as listed in the table of contents. These financial statements are the responsibility of Arkansas Tech University s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Arkansas Tech University as of June 30, 2001 and changes in fund balances and the current funds revenues, expenditures, and other changes for the year then ended, in conformity with accounting principles generally accepted in the United States. In accordance with Government Auditing Standards, we have also issued our report dated January 22, 2002 on our consideration of Arkansas Tech University's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying financial information listed as supporting schedules in the table of contents, including the schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the financial statements of Arkansas Tech University. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financial statements taken as a whole. DIVISION OF LEGISLATIVE AUDIT Charles L. Robinson, CPA, CFE Legislative Auditor Little Rock, Arkansas January 22, 2002 EDHE13001
COMBINED REPORT(S) ON COMPLIANCE, INTERNAL CONTROLS AND OTHER MATTERS Arkansas Tech University Legislative Joint Auditing Committee The underlying purpose of this letter is to convey certain observations and recommendations regarding state and federal compliance and internal control in conjunction with our audit of Arkansas Tech University. This letter reflects various requirements and pronouncements of the American Institute of Certified Public Accountants (AICPA), the United States General Accounting Office (GAO), the United States Office of Management and Budget (OMB), the Single Audit Act of 1984 and the Single Audit Act Amendments of 1996. Section I of this letter is designed to satisfy certain requirements for compliance and internal control over financial reporting, whereas, Section II is designed to satisfy certain requirements for compliance requirements applicable to each major federal award program and internal control over compliance in accordance with OMB Circular A-133. SECTION I: REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited the financial statements of Arkansas Tech University (Institution), an Institution of Higher Education of the State of Arkansas, as of and for the year ended June 30, 2001, and have issued our report thereon dated January 22, 2002. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the Institution s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of the state constitution, state and federal laws and regulations, and federal contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards.
Internal Control Over Financial Reporting In planning and performing our audit, we considered the Institution s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the Institution s ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. Reportable conditions are disclosed below in the Audit Findings section of this letter. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe none of the reportable conditions described above is a material weakness. AUDIT FINDING Arkansas Tech University determined undocumented expenditures in the amount of $838.66 were made from the Football Camp Account during the summer of 2001. These funds were reimbursed to Arkansas Tech University on August 23, 2001. SECTION II: REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR FEDERAL AWARD PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Compliance We have audited the compliance of Arkansas Tech University with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2001. The Institution s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of Federal Award Programs - Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the Institution s management. Our responsibility is to express an opinion on the Institution compliance based on our audit. -3-
We conducted our audit of compliance in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Institution s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Institution s compliance with those requirements. In our opinion, Arkansas Tech University complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2001. Internal Control Over Compliance The management of the Institution is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the Institution internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. GENERAL COMMENTS RELATED ORGANIZATION There are in existence two nonprofit entities with significant financial resources which is related to Arkansas Tech University, but whose accounts are appropriately not recorded in the accounting system of the Institution. These related nonprofit entities were established for the benefit of the Institution. The entities such as that described above, of which we have knowledge, are Arkansas Tech Endowment Trust Fund, Inc. and Arkansas Tech University Facilities Development Foundation, Inc. Activities surrounding such organization as that described above, including but not limited to the following, have not been independently evaluated by the appropriate bodies outside of Arkansas Tech University: A. Fund raising activities on behalf of related nonprofit entity by employees of the Institution. B. The holding of Officer, Director, and quasi-employee positions of related nonprofit entity by employees and/or directors of the Institution. C. Review of expenditures by related nonprofit entity by appropriate personnel. -4-
STUDENT ENROLLMENT DATA - In accordance with Ark. Code Ann. 6-60-209, we performed tests of the student enrollment data for the year ended June 30, 2001, as reported to the State Department of Higher Education, to provide reasonable assurance that the data was properly reported. Our testing was limited to the fall and spring terms of the year. The enrollment data reported was as follows: Second First Summer Summer Term 2000 Fall Term Spring Term Term 2001 Student Headcount 1,484 4,840 4,475 980 Student Semester Credit Hours 7,059 62,976 57,622 4,241 During our review, nothing came to our attention that would cause us to believe that the student enrollment data was not substantially correct. These reports are intended for the information and use of the Legislative Joint Auditing Committee, state executive and oversight management, Institution management, the federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specific parties. However, this report is a matter of public record and its distribution is not limited. DIVISION OF LEGISLATIVE AUDIT William R. Baum, CPA, CFE Deputy Legislative Auditor Little Rock, Arkansas January 22, 2002-5-
BALANCE SHEET JUNE 30, 2001 WITH COMPARATIVE TOTALS AT JUNE 30, 2000 Exhibit A Current Funds Endowment and Plant Funds Retirement of Investment Agency Total All Funds Unrestricted Restricted Loan Funds Similar Funds Unexpended Indebtedness in Plant Funds June 30, 2001 June 30, 2000 ASSETS Cash $ 814,343 $ 262,424 $ 108,323 $ 2,659 $ 2,884,064 $ 37,650 $ 65,011 $ 4,174,474 $ 3,263,924 Investments 11,986,110 1,325,542 13,824,655 1,358,677 28,494,984 26,135,443 Accounts receivable (net of allowance for doubtful accounts of: 2001, $63,783 2000, $46,843) 1,623,772 177,443 4,762 1,082 52,347 2,035 1,861,441 1,494,771 Accounts receivable - other 138,539 21 30 138,590 108,453 Notes receivable (net of allowance for doubtful accounts of: 2001, $385,221 2000, $361,088) 1,308,221 1,308,221 1,194,635 Interfund receivables 2,000 136,902 138,902 361,181 Inventories 436,449 436,449 521,737 Prepaid expenses 15,324 15,324 20,213 Land $ 151,907 151,907 151,907 Buildings 48,702,208 48,702,208 48,180,283 Improvements other than buildings 3,406,331 3,406,331 3,144,491 Equipment 12,592,787 12,592,787 11,807,170 Library holdings 5,772,904 5,772,904 5,286,176 Construction in progress 10,219,278 10,219,278 1,826,732 Livestock 82,150 82,150 69,870 TOTAL ASSETS $ 15,016,537 $ 439,888 $ 1,421,306 $ 1,329,283 $ 27,117,276 $ 1,398,362 $ 70,708,287 $ 65,011 $ 117,495,950 $ 103,566,986 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Deferred revenues Interfund payables Deposits/assets held in $ 230,387 $ 567 $ 77,260 $ 308,214 $ 552,875 150,293 376,349 526,642 454,754 1,000 1,000 $ 136,902 138,902 361,181 custody for others $ 65,011 65,011 153,557 Unapplied student aid 95,609 95,609 147,072 Liability for unclaimed property 4,068 4,068 3,211 Construction retainage payable 467,969 467,969 Capital leases $ 136,857 136,857 181,986 Bonds payable 19,815,000 1,144,000 20,959,000 11,177,000 Compensated absences payable 775,829 775,829 716,040 Total Liabilities 1,256,186 377,916 20,361,229 136,902 1,280,857 65,011 23,478,101 13,747,676 Fund Balances: Unrestricted Restricted Quasi-endowment - unrestricted Net investment in plant Total Fund Balances TOTAL LIABILITIES AND FUND BALANCES 13,760,351 5,322,067 19,082,418 15,666,301 61,972 $ 1,421,306 1,433,980 1,261,460 4,178,718 6,744,649 $ 1,329,283 1,329,283 157,447 69,427,430 69,427,430 67,250,913 13,760,351 61,972 1,421,306 1,329,283 6,756,047 1,261,460 69,427,430 94,017,849 89,819,310 $ 15,016,537 $ 439,888 $ 1,421,306 $ 1,329,283 $ 27,117,276 $ 1,398,362 $ 70,708,287 $ 65,011 $ 117,495,950 $ 103,566,986 See accompanying summary of significant accounting policies and notes to financial statements. - 6 -
STATEMENT OF CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2001 Exhibit B Plant Funds Current Funds Endowment and Retirement of Investment Unrestricted Restricted Loan Funds Similar Funds Unexpended Indebtedness in Plant REVENUES AND OTHER ADDITIONS Unrestricted current fund revenues Gifts, grants, and contracts State appropriations - restricted Proceeds from bonds and notes payable Acquisition of plant facilities (including $1,082,920 charged to current funds expenditures) Investment income Interest on loans receivable Increase in contruction in progress Bonds retired Capital lease retired Other additions $ 42,938,219 $ 4,520 $ 31,824 $ 17,526,310 164,630 284,517 10,000,000 $ 2,835 $ 44,511 601,189 55,458 19,794 8,406,945 155,000 $ 63,000 45,128 1,559 74,144 4,092 58,950 TOTAL REVENUES AND OTHER ADDITIONS 42,939,778 17,526,310 96,773 44,511 19,620,893 87,282 167,078 EXPENDITURES AND OTHER DEDUCTIONS Educational and general expenditures 32,004,735 17,662,219 Auxiliary enterprises expenditures 6,726,183 29,489 Loan cancellations, write-offs and assignments Expanded for plant facilities (including noncapitalized expenditures of $8,807,824) Retirement of indebtedness Interest on indebtedness Disposition of plant facilities, library holdings and equipment Increase in allowance for doubtful accounts Increase in liability for compensated absences Increase in bond payable Bond issue costs Loss on valuation of investments Other deductions 39,618 19,400 24,133 59,789 218,000 773,688 10,000,000 211,522 67,056 75,657 34,047 5,319 608,326 TOTAL EXPENDITURES AND OTHER DEDUCTIONS 38,810,107 17,725,755 63,751 67,056 10,287,179 997,007 608,326 TRANSFERS AMONG FUNDS - ADDITIONS (DEDUCTIONS) Mandatory: Principal and interest Loan fund matching grant Other mandatory (766,377) 766,377 (11,755) 11,755 1,194,381 (2,426,755) 165,076 698,143 354,755 14,399 TOTAL TRANSFERS AMONG FUNDS (3,204,887) 165,076 11,755 1,194,381 698,143 1,121,132 14,399 NET INCREASE (DECREASE) FOR THE YEAR 924,784 (34,369) 44,777 1,171,836 10,031,857 211,407 (426,849) FUND BALANCES AT BEGINNING OF YEAR FUND BALANCES AT END OF YEAR 12,835,567 96,341 1,376,529 157,447 7,052,460 1,050,053 67,250,913 $ 13,760,351 $ 61,972 $ 1,421,306 $ 1,329,283 $ 17,084,317 $ 1,261,460 $ 66,824,064 See accompanying summary of significant accounting policies and notes to financial statements. - 7 -
STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES AND OTHER CHANGES FOR THE YEAR ENDED JUNE 30, 2001 Exhibit C REVENUES Tuition and fees State appropriations Gifts, grants and contracts Sales and services of educational departments Sales and services of auxiliary enterprises Other sources TOTAL REVENUES EXPENDITURES AND MANDATORY TRANSFERS Educational and General: Instruction Research Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships and fellowships Educational and General Expenditures Total Year Ended June 30, 2001 Year Ended Increase Unrestricted Restricted Total June 30, 2000 (Decrease) $ 12,945,089 $ 12,945,089 $ 11,131,256 $ 1,813,833 20,359,283 20,359,283 19,863,690 495,593 111,400 $ 17,526,310 17,637,710 15,217,821 2,419,889 281,656 281,656 244,276 37,380 7,566,436 7,566,436 7,523,116 43,320 1,674,355 1,674,355 1,401,237 273,118 42,938,219 17,526,310 60,464,529 55,381,396 5,083,133 15,049,564 414,086 15,463,650 14,534,321 929,329 333,370 243,768 577,138 543,670 33,468 3,958 17,491 21,449 40,688 (19,239) 3,217,018 67,748 3,284,766 3,330,826 (46,060) 2,327,100 214,401 2,541,501 2,454,541 86,960 4,361,152 44,535 4,405,687 4,044,767 360,920 3,390,793 3,390,793 2,925,077 465,716 3,321,781 16,660,190 19,981,971 16,798,946 3,183,025 32,004,736 17,662,219 49,666,955 44,672,836 4,994,119 Mandatory transfers for: Principal and interest 310,704 310,704 269,006 41,698 Loan fund matching grant 11,755 11,755 10,933 822 Renewals and replacements 3,102 (3,102) Total Educational and General 32,327,195 17,662,219 49,989,414 44,955,877 5,033,537 Auxiliary Enterprises: Expenditures Mandatory transfers for: Principal and interest Renewals and replacements Total Auxiliary Enterprises 6,726,183 29,489 6,755,672 6,776,727 (21,055) 455,674 455,674 350,946 104,728 33,899 (33,899) 7,181,857 29,489 7,211,346 7,161,572 49,774 TOTAL EXPENDITURES AND MANDATORY TRANSFERS 39,509,052 17,691,708 57,200,760 52,117,449 5,083,311-8 -
STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES AND OTHER CHANGES FOR THE YEAR ENDED JUNE 30, 2001 Exhibit C Year Ended June 30, 2001 Total Year Ended Increase Unrestricted Restricted Total June 30, 2000 (Decrease) OTHER TRANSFERS AND ADDITIONS (DEDUCTIONS Prior year corrections other $ 1,326 $ 1,326 $ (1,730) $ 3,056 Increase in allowance for doubtful accounts (19,400) (19,400) (27,740) 8,340 Increase in liability for uncompensated absences (59,789) (59,789) (65,033) 5,244 Excess receipts over expenditures 77,129 (77,129) Excess expenditures over receipts $ (34,047) (34,047) (34,047) Outlawed warrants 235 235 413 (178) Transfers in 43,384 165,398 208,782 238,015 (29,233) Transfer out (2,470,139) (322) (2,470,461) (3,035,329) 564,868 Refund of expenditures 268 (268) NET INCREASE/DECREASE IN FUND BALANCES $ 924,784 $ (34,369) $ 890,415 $ 449,940 $ 440,475 See the accompanying summary of significant accounting policies and notes to financial statements. - 9 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 1: Reporting Entity Arkansas Tech University was created by Act 100 of the Arkansas General Assembly in 1909. Under the provisions of this Act, the state was divided into four (4) agricultural school districts. The General Assembly in 1925 changed the name from the second district Agriculture College to the Arkansas Polytechnic College with power to grant degrees. In 1948, the Board of Trustees converted the college from a junior college to a degree granting institution. In accordance with Act 343 of 1975, the Arkansas General Assembly and the authority of the State Board of Higher Education, the name of Arkansas Polytechnic College was changed to Arkansas Tech University effective July 9, 1976. In 1978, the institution reorganized its program into the School of Education, Liberal and Fine Arts, Physical and Life Sciences, Business and System Science. NOTE 2: Summary of Significant Accounting Policies Accrual Basis The financial statements of the Institution have been prepared on the accrual basis, except for depreciation accounting. The statement of current funds revenues, expenditures, and other changes is a statement of financial activities of current funds related to the current reporting period. It does not purport to present the results of operations or the net earnings or loss for the period, as would an income statement. Fund Accounting To ensure observance of limitations and restrictions placed on the use of the resources available to the Institution, the accounts are maintained in accordance with the principles of fund accounting. Resources are classified for accounting and reporting purposes into funds which may be used for specified activities or objectives. Separate accounts are maintained for each fund; however, in the accompanying financial statements, where applicable, funds that have similar characteristics have been combined into fund groups. Within each fund group, fund balances restricted by outside sources are so indicated and are distinguished from unrestricted funds allocated for specific purposes by action of the Board of Trustees. Externally restricted funds may only be utilized for the purposes established by the source of such funds whereas unrestricted funds are under the control of the Institution to use in achieving any of its educational purposes. Current Funds Current funds balances are separated into those which are restricted by donors or grantors and those which are unrestricted. Restricted current revenues are reported to the extent of expenditures for current operating purposes. Endowment and Similar Funds Endowment and similar funds are subdivided into appropriate classifications. Endowment funds have been received from benefactors who, by the terms of their conveying instruments, have stipulated that the principal of their gift may never be expended. Funds functioning as endowment are funds, which the Board of Trustees of the Institution, rather than the donor, has determined are to be retained and invested until the Board, at its discretion, authorizes their expenditure. The principal of such funds may be either restricted or unrestricted as to use. -10-
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 2: Summary of Significant Accounting Policies (Continued) Endowment and Similar Funds (Continued) Income derived from investments of endowment and similar funds is accounted for in the funds to which it is restricted, or if unrestricted, as revenues in unrestricted current funds. Investments Investments are stated at fair value. Fair value is a market price if a market price or quote is readily available. Carrying amounts of investments are adjusted for increases or decreases in values. Gains and losses on investment transactions are accounted for in the funds which owned such assets. Accounts Receivable Unrestricted current funds accounts receivable are stated at estimated net realizable values; that is, the gross amount of the receivable is reduced by allowances for estimated uncollectible accounts. Unrestricted current fund receivables represent charges due the University from various educational activities, student fees and room and board. Restricted current fund accounts receivable consist mainly of unreimbursed expenses relating to research contracts with federal contracts with federal, state and private agencies. Inventories Inventories are valued at cost with cost being generally determined on a first in, first out basis. Investment in Plant Plant assets consisting of land, buildings, library holdings, equipment, improvements and construction in progress are stated at cost or, if contributed, at fair market value on date of gift. Encumbrances Encumbrances are defined as commitments related to unperformed contracts for goods or services. The Institution does not record encumbrances in its accounting system and none are recorded in the accompanying financial statements. Interfund Receivables and Payables Interfund receivables and payables result from services rendered from one fund to another or from interfund loans. -11-
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 3: Public Fund Deposits and Investments Cash deposits are carried at cost. The Institution s cash deposits at year-end are shown below: Carrying Amount Bank Balance Insured (FDIC) $ 194,470 $ 288,211 Uninsured, Collateralized 3,446,006 6,161,315 Total Deposits $ 3,640,476 $ 6,449,526 The above deposits do not include cash on deposit in the state treasury or cash on hand in the amounts of $498,248 and $35,750 for the year ended June 30, 2001, respectively. Investments are reported at fair value. Fair value for reporting purposes is market value if a market price or quote is readily available. Investments that do not have readily available market prices or quotes are reported at estimated fair value. The Institution s investments at year-end are shown below by category to give an indication of the level of risk assumed. Category 1 includes investments that are insured or registered or for which the securities are held by Arkansas Tech University or its agent in the Institution's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the broker's or dealer's trust department or agent in the Institution s name. Category 3 includes uninsured and unregistered investments for which the securities are held by the broker or dealer, or by its trust department or agent but not in the Institution's name. Type of Category Carrying Market Investment 1 2 3 Amount Value Certificates of deposit $ 15,894,558 $ 15,894,558 $ 15,894,558 Federated Treasury Obligations 2,061,925 2,061,925 2,061,925 AIG I/A FPJ Financial Products 204,700 204,700 204,700 Common Fund Equities and Bonds 1,169,613 1,236,670 1,169,613 Purchase and Resale Agreements 9,164,187 9,164,187 9,164,187 Security Bond Policy 1 1 1 Totals $ 28,494,984 $ 28,562,041 $ 28,494,984-12-
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 4: Income Tax The Institution is tax exempt under Internal Revenue Service code. It is also exempt from state income taxes under Arkansas law. Accordingly, no provision for income taxes is made in the financial statements. NOTE 5: Capital Lease Arkansas Tech University has leased an IBM mainframe computer from Alltel Information Services, Inc. in March 1999. Payments are $4,619.49 a month for sixty (60) months and made from Current Unrestricted. Total capital leases principal and interest payments are as follows: Year Ended June 30, Principal Interest Total 2002 $ 48,076 $ 7,358 $ 55,434 2003 51,232 4,202 55,434 2004 37,549 946 38,495 $ 136,857 $ 12,506 $ 149,363 NOTE 6: Long-Term Debt Debt payments on bonds amounted to $997,006 for the fiscal year ended June 30, 2001. A summary of long-term debt is as follows: -13-
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 6: Long-Term Debt (Continued) Amount Debt Maturities Date of Final Rate of Authorized Outstanding To Date of Issue Maturity Interest and Issued June 30, 2001 June 30, 2001 3-31-71 10-1-02 4.25 & 5% $ 286,000 $ 19,000 $ 267,000 10-1-96 10-1-16 3.75, 4, 4.25, 4.35, 4.5, 5.2, 5.25, 5.3 & 5.65% 1,300,000 1,125,000 175,000 7-1-99 7-1-29 3-1-00 3-1-30 3.75, 4.15, 4.25, 4.35, 4.45, 4.55, 4.65, 4.75, 4.85, 4.95, 5.0, 5.15, 5.2, 5.3 & 5.4 6,000,000 5,870,000 130,000 5, 5.05, 5.15, 5.25, 5.3, 5.35, 5.45, 5.5, 5.6, 5.7, 5.8, 5.9, 6 & 6.375% 4,000,000 3,945,000 55,000 2-27-01 12-1-31 5.25% 10,000,000 10,000,000 3-1-99 3-1-04 3.7% 236,791 136,857 99,934 Totals $ 21,822,791 $ 21,095,857 $ 726,934 The changes in long-term debt are as follows: Balance Balance July 1, 2000 Issued Retired June 30, 2001 Bonds payable $ 11,177,000 $ 10,000,000 $ 218,000 $ 20,959,000 Capital lease 181,986 45,129 136,857 Totals $ 11,358,986 $ 10,000,000 $ 263,129 $ 21,095,857-14-
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 6: Long-Term Debt (Continued) Total long-term debt principal and interest payments are as follows: Principal Interest Total 2002 $ 282,076 $ 1,098,840 $ 1,380,916 2003 431,232 1,082,669 1,513,901 2004 437,549 1,063,446 1,500,995 2005 410,000 1,045,437 1,455,437 2006 430,000 1,027,492 1,457,492 To Maturity 19,105,000 15,284,305 34,389,305 Totals $ 21,095,857 $ 20,602,189 $ 41,698,046 NOTE 7: Commitments The Institution was contractually obligated for the following at June 30, 2001: Construction Contracts Estimated Project Name Completion Date Contract Balance Bookstore Renovation February 28, 2002 $ 5,863 Paine Hall Renovation March 31, 2002 75,900 Swine Facility December 31,2002 3,725 Food Lab May 31, 2002 10,757 New Dormitory June 30, 2002 7,470,305 Witherspoon Parking March 31, 2002 5,306 "O" Street Improvement March 31, 2002 346,210 Hull Building January 31, 2002 2,097,493 Crabaugh House Renovation February 15, 2002 6,477 Total $ 10,022,036 NOTE 8: Retirement Plans Teachers Insurance and Annuity Association/College Retirement Equities Fund (TIAA/CREF) Plan Description. The Institution participates in TIAA/CREF, a defined contribution plan. The plan is a 403(b) program as defined by Internal Revenue Service Code of 1986 as amended, and is administered by Arkansas Tech University. TIAA is an insurance company offering participants a traditional annuity with guaranteed principle and a specific interest rate plus the opportunity for additional growth through dividends. CREF is an investment company which offers a variable annuity. Arkansas law authorizes participation in the plan. -15-
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 8: Retirement Plans (Continued) Teachers Insurance and Annuity Association/College Retirement Equities Fund (TIAA/CREF) (Continued) Funding Policy. TIAA/CREF has contributory and non-contributory plans. Contributory members contribute 6% of earnings to the plan. The Institution contributes 0% of earnings for non-contributory and matches 10% for contributory members. The Institution's and participants' contributions for the year ended June 30, 2001 were $1,389,695 and $1,039,120, respectively. Arkansas Teacher Retirement System Plan Description. The Institution contributes to the Arkansas Teacher Retirement System (ATRS), a costsharing multiple-employer defined benefit pension plan for employees who do not elect a qualified alternative retirement plan. ATRS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit and contribution provisions are established by State law and can be amended only by the Arkansas General Assembly. The Arkansas Teacher Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for ATRS. That report may be obtained by writing to Arkansas Teacher Retirement System, 1400 West Third Street, Little Rock, Arkansas 72201 or by calling 1-800-666-2877. Funding Policy. ATRS has contributory and non-contributory plans. Contributory members are required by law to contribute 6% of their salaries. Each participating employer is required by law to contribute at a rate established the by Arkansas General Assembly. The current employer rate is 12%. The Institution s contributions to ATRS for the years ended June 30, 2001, 2000 and 1999 were $157,034, $148,368 and $136,368, respectively, equal to the required contributions for each year. Arkansas Public Employees Retirement System Plan Description. The Institution contributes to the Arkansas Public Employees Retirement System (PERS), a cost-sharing multiple-employer defined benefit pension plan. Employees may elect coverage under PERS as a qualified retirement system. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit and contribution provisions are established by State law and can be amended only by the Arkansas General Assembly. The Arkansas Public Employees Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for PERS. That report may be obtained by writing to Arkansas Public Employees Retirement System, One Union National Plaza, 124 W. Capitol, Little Rock, Arkansas 72201 or by calling 1-800-682-7377. Funding Policy. PERS has contributory and non-contributory plans. Contributory members are required by law to contribute 6% of their salaries. Each participating employer is required by law to contribute at a rate established by the Arkansas General Assembly. The current statutory employer rate is 10% of annual covered payroll. The Institution s contributions to PERS for the years ended June 30, 2001, 2000 and 1999 were $287,353, $294,103 and $266,458, respectively, equal to the required contributions for each year. -16-
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 9: Related Organizations The Institution operates two (2) nonprofit benevolent corporation for charitable educational purposes. A summary of the Foundations financial condition as of June 30, 2001, follows: Arkansas Tech ASSETS Arkansas Tech Endowment and Trust Fund, Inc. University Facilities Development Foundation, Inc. Cash and investments $ 7,406,226 $ 603,505 Receivables 332,447 8,989 Physical properties 4,218,118 Other 296,158 242,386 TOTAL ASSETS $ 8,034,831 $ 5,072,998 LIABILITIES AND FUND BALANCES Accounts payable and accrued expenses $ 96,083 $ 62,471 Notes payable 4,990,000 Other Liabilities 1,230,000 Fund balances 6,708,748 20,527 TOTAL LIABILITIES AND FUND BALANCES $ 8,034,831 $ 5,072,998 Major components of the changes in fund balances during 2001 consisted of: Arkansas Tech Endowment and Trust Fund, Inc. Donations $ 351,192 Arkansas Tech University Facilities Development Foundation, Inc. Other revenue and additions $ 576,337 Total 351,192 576,337 Expenditures 993,048 421,951 Other Deductions 156,187 Total 993,048 578,138 Net Increase/(Decrease) in Fund Balance $ (641,856) $ (1,801) -17-
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 10: Donald W. Reynolds Foundation Grant Arkansas Tech University has been awarded a $13,085,100 grant from the Donald W. Reynolds Foundation. This grant is being used to construct and equip a three-story 92,424 square foot building entitled the Ross Pendergraft Library and Technology Center on the campus. The University requested $1,121,007 in grant funds during the 1999-2000 fiscal year. The remaining grant balance on $236,419 will be requested during the next fiscal year. NOTE 11: Post Retirement Healthcare and Life Insurance Benefits Arkansas Tech University presently provides health care and life insurance benefits for retired employees. Employees with 10 years or more service to the University and age 60 become eligible for these benefits at retirement and remain eligible until they reach medicare age at which time the benefits cease. Retiree health care and life insurance premiums of $177,224 and $1,962 respectively, were expensed as paid during the 1999-2000 fiscal year. NOTE 12: Contingencies Dr. Banchie Alex Darkwah v. Arkansas Tech University, et. al., United States District Court No. 4:00CV00090- WRW was dismissed on July 23, 2001 by Order Granting Summary Judgment. -18-
EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2001 Schedule 1 Federal Agency or Federal Grantor/Pass Through CFDA Pass-Through Federal Grantor/Program or Cluster Title Number Number Expenditures STUDENT FINANCIAL ASSISTANCE CLUSTER U. S. Department of Education: Federal Supplemental Educational Opportunity Grants 84.007 $ 132,654 Federal Family Educational Loans 84.032 8,670,145 Federal Work-Study Program 84.033 202,947 Federal Perkins Loan Program 84.038 11,755 Federal Pell Grant Program 84.063 3,789,958 Total U. S. Department of Education 12,807,459 Department of Labor: Job Training Program Aid 17.25 141,705 Department of Veterans Affaris: Veterans Administration - Scholarships 64 unknown 73,985 TOTAL STUDENT FINANCIAL ASSISTANCE CLUSTER 13,023,149 RESEARCH AND DEVELOPMENT CLUSTER National Aeronautical Space Administration 43.RD 21,703 National Science Foundation 47.RD 42,072 Department of Agriculture 10.RD 1,160 Nuclear Regulatory Commission 77.RD 201 United States Forestry Service 11.unknown 68,666 Department of Interior 15.unknown 2,379 TOTAL RESEARCH AND DEVELOPMENT CLUSTER 136,181 OTHER PROGRAMS United States Department of Education 84.unknown 44,200 TOTAL EXPENDITURES OF FEDERAL FUNDS $ 13,203,530 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Note 1: Basis of Presentation - The accompanying schedule of expenditures of federal awards includes the federal grant activity of ATU and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the presentation of, the basic financial statements. - 19 -
FEDERAL AWARD PROGRAMS - FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2001 Schedule 2 SECTION I - SUMMARY OF AUDITOR'S RESULTS FINANCIAL STATEMENTS Type of auditor's report issued: unqualified Internal control over financial reporting: Material weakness(es) identified? Reportable condition(s) identified that are not considered to be material weakness(es)? yes yes no none reported Noncompliance material to financial statements noted? FEDERAL AWARDS yes no Internal control over major programs: Material weakness(es) identified? Reportable condition(s) identified that are not considered to be material weakness(es)? Type of auditor's report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? yes yes unqualified yes no none reported no Identification of major programs: CFDA Numbers 84.007, 17.25, 84.032, 84.033, 84.038, 84.063, 64.unknown Name of Federal Programs or Cluster Student Financial Aid Cluster Dollar threshold used to distinguish between Type A and Type B programs $ 300,000 Auditee qualified as low-risk auditee? yes SECTION II - FINANCIAL STATEMENT FINDINGS no None No findings and questioned costs noted. SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS - 20 -
FEDERAL AWARD PROGRAMS - SUMMARY OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED JUNE 30, 2001 Schedule 3 There were no findings in the prior audit. - 21 -